Despite feverish efforts by the White House and congressional Democrats to insert a provision into the federal spending bill that would allow the Caribbean island territory to tackle its massive $72 billion debt through bankruptcy restructuring, top Republicans in the Senate scuttled it at the last minute.

Their refusal now leaves Puerto Rico just two weeks away from the biggest municipal bond default in American history.

"The hedge funds won, they got their way in Congress," said Richard Ravitch, New York's former lieutenant governor.

Ravitch, who steered this city through its financial troubles in the 1970s, and assisted Detroit in its bankruptcy exit plan, has been an unpaid adviser to Puerto Rico's government and a major advocate of a special "territorial" bankruptcy provision for the island.

San Juan, the capital of Puerto Rico, faces an uncertain future once bond payments come due Jan. 1. (Ricardo Arduengo/AP)

On Jan. 1, nearly $1 billion in debt service payments come due. The only way Gov. Alejandro Garcia Padilla can make that payment — and hundreds of millions more that are due in subsequent months — is by further decimating basic services to his island's 3.5 million U.S. citizens.

Well, Garcia Padilla should refuse to do that. He should follow, instead, the example of Alexis Tsipras in Greece.

He should tell Congress, the bondholders and hedge funds: "Puerto Rico can't pay what it doesn't have."

Then, when the tremors sweep Wall Street following a Puerto Rico default, watch the change in attitude.

Last week, it appeared that confrontation could be avoided. New York Sen. Chuck Schumer expressed optimism that a bipartisan compromise to aid Puerto Rico could be reached.

On Monday, Schumer and Sen. Maria Cantwell (D-Wash.) huddled late into the night with three top GOP leaders — Sens. Chuck Grassley, chairman of the Judiciary Committee; Orrin Hatch, chairman of the Finance Committee; and Lisa Murkowski, chairwoman of the Energy Committee — and their top aides to find common ground.

But Grassley was adamant, according to two participants in the meeting, that he didn't want to extend municipal bankruptcy laws to Puerto Rico, a right the 50 states already have.

Cantwell then offered a last-minute compromise that did not specifically authorize bankruptcy.

She proposed creating instead a five-member board appointed by the President (with three members from the U.S. and two from Puerto Rico). That board would monitor the island's finances and recommend any possible restructuring. In the meantime, all lawsuits would be held in abeyance pending voluntary talks with creditors.

On Tuesday, Grassley rejected that compromise.

"The last-minute Cantwell proposal was little more than the Obama administration's plan that has been roundly criticized and has little support on Capitol Hill," Grassley's spokesman Taylor Foy said.

"The bottom line is that neither Chapter 9 (normal municipal bankruptcy) nor Super Chapter 9 (the territorial alternative) do anything to help Puerto Rico's spending problems, which are the crux of the issue," Foy said.

"This is disgusting and insulting," said Rep. Nydia Velazquez (D-N.Y.) in response. "The ones who have not been serious on this issue have been the Republicans."

Velazquez, along with Schumer, has been spearheading the fight in Congress for assistance to Puerto Rico.